Cross-reference to HCS CSSB 183 (Finance), the 1994 capital budget. Co-chair Pearce next directed that the committee proceed to discussion of the proposed new ferry for the ALASKA MARINE HIGHWAY SYSTEM as well as financing proposals to cover the cost of construction. JIM AYERS, System Manager, Alaska Marine Highway System, Dept. of Transportation and Public Facilities, came before committee. As background information, he advised that the department conducted both an economic impact analysis and a "condition survey of the entire fleet" to determine the condition of all vessels and what would be necessary to maintain the fleet into the next century. Approximately 25 hearing were had regarding the Alaska Marine Highway System and its importance to the state economy and the economic and social stability of communities. From that information, the department developed a master plan to refurbish all vessels but the MALASPINA. Since that vessel is 30 years old, and no work had been done on it aside from the stretching in the mid 1970s, the estimated cost for repowering and refurbishing was $50 to $62 million. A comparative analysis determined it was more viable to build a new vessel. The state has, on several occasions (most recently for the EXXON VALDEZ oil spill), used the ferries in emergency situations. Emergency response plans for fire, earthquake, tsunami, etc. involve and include use of one of the marine highway system vessels. It was thus clear that the new vessel needed to be ocean-going and have both command capability and ability to provide assistance to a smaller fleet of vessels (fishing vessels). A design contract was let through the RFP process to Glosten Associates in Seattle. Mr. Ayers noted the presence of Mr. Van Slyke, an engineer with Glosten. Mr. Ayers further spoke to the advisability of having a project manager follow the project through construction and manage both shipyard activity as well as design. The system contracted with M. Rosenblatt & Sons, Inc. for that service. Mr. Ayers next introduced Mr. Richard Ploss, an engineer with Rosenblatt & Sons. The conceptual design stage has now been completed. Mr. Ayers referenced a video outlining the proposed new vessel and asked that Mr. Ploss provide a narrative. Prior to commencing the video, Mr. Ayers explained that the vessel would serve southeast. Since it would be ocean going, it could also fill in for the TUSTUMENA, allowing the system to provide service to Kodiak and the Aleutian Chain through fall and early winter. (Senator Kerttula arrived at the meeting at this time.) RICHARD PLOSS, Project Manager, M. Rosenblatt and Sons, Inc., came before committee and directed attention to a video utilizing virtual imaging to characterize the proposed vessel. The new ferry would be 85 feet wide and 380 feet long. It would have a helicopter pad, and a car elevator for southwest operation. Vehicle capacity would be approximately 120 cars. There would be 98 to 104 cabins for passengers. The vessel would include extensive electronic communication capability via satellite, ability to convert to necessary work stations to monitor an oil spill, and a modular float. Brief discussion followed between Mr. Ayers and Senator Kelly regarding lack of establishment of depots by the oil spill response advisory team and the coast guard. Boom needed to contain a spill is to be located at depots. The vessel would have loading capability. DEC modulars with needed equipment (diving equipment, computers, refrigeration facilities ) would also be located at specific sites. The new vessel would be pre-wired for plug in of this equipment when needed. Discussion followed between Co-chair Pearce, Senator Kelly, and Mr. Ayers pertaining to the cost of DEC equipment. Further comments followed by Mr. Ploss regarding refrigeration capabilities and the number of cars carried when the ferry is in use in southwest rather than southeast Alaska. In response to a question from Co-chair Pearce, Mr. Ploss advised that the new ferry would have an ice-strengthened bow but no ice breaking hull. It will not be able to serve as an ice breaker. In response to a further question from the Co-chair, Mr. Ploss said that the new ferry would be able to come into Cook Inlet during the winter. Co-chair Pearce inquired concerning the most recent cost estimate. Mr. Ayers said that at conceptual design stage the estimate is $85 million. Co-chair Frank asked when a fixed dollar contract would issue. Mr. Ayers said the state has been working with the federal government to avoid need to solicit a low-cost bid which allows a shipyard, through changes orders, to drive up the price. The preliminary design will be completed with as much detail as possible. Bids will be sought from three qualified shipyards. The project will then be managed so that it is neither low-cost bid nor cost plus. Those two items cause shipyard prices to vary radically. In response to a question from Co-chair Frank, Mr. Ayers explained that the project would require use of federal highway dollars. The federal highway regulations bidding process thus governs. Further discussion followed regarding pre-qualification of shipyards and evaluation of proposals. Co-chair Pearce raised concern regarding the financial capability of shipyards. Mr. Ploss advised that approximately 17 yards are interested in the project. He stressed that the pre-qualification procedure is designed to ensure financial qualification. Mr. Ploss advised of his belief that 10 to 12 yards could handle a project of this size. Senator Sharp raised a question concerning federal participation in cost overruns. HAROLD MOESER, Construction Engineer, Alaska Marine Highway System, Dept. of Transportation and Public Facilities, came before committee. He said that once the federal government agrees to participate in a project with the state, it also agrees to participate in change orders. The only exception is a gross blunder or negligence. Discussion followed between Senator Sharp and Mr. Ploss regarding normal bid and construction procedures versus the innovative process proposed for the new ferry. Mr. Ploss said that the federal government is most interested in the project because it has not previously found an organization interested in pursuing this type of detail ahead of time. These procedures are utilized by European and Oriental yards to bring in quality vessels at cost. The procedure has twice been used successfully in the United States. In response to a question from Co-chair Pearce, Mr. Ayers explained that the governor's budget contains a request for "$60 million of authorization." Obligation of federal dollars would be over a two-year period. Authorization is sought this year so that the project may go to bid. Senator Kelly voiced his understanding that the total represents "all the discretionary funding in ISTEA." Mr. Ayers responded negatively. Mr. Moeser advised that ISTEA allows approximately $70 million a year in discretionary moneys for ferry transportation. That competition is nationwide. The department has dedicated approximately $100 million in ISTEA moneys for port programs. The $30 million over two years would be set aside out of ISTEA for system expansion. Senator Kelly voiced his understanding that under percentage distribution of ISTEA funding for core roads (50%), boroughs (35%), and discretionary projects (15%), the new ferry would utilize all state discretionary moneys for two years. He further voiced his belief that $85 million sounds soft in terms of total construction cost. Discussion of state and federal fiscal years and obligation of funds over a three-year rather than two-year period followed between Senator Frank and Mr. Moeser. End, SFC-93, #47, Side 1 Begin, SFC-93, #47, Side 2 In response to a question from Senator Kelly concerning how the department intends to fund construction of the new ferry, Mr. Ayers explained that a combination of state and federal funds would be used. The system has been working with the state's Washington, D.C., office as well as attempting to work with the legislature. The department hopes to obtain additional funds from Congress for the ferry as a demonstration project. Co-chair Pearce inquired concerning the actual number for the federal match in the governor's budget. She noted funding of $54.6 million in one document and $60 million in another. Mr. Ayers voiced his understanding that the governor's budget requests $60 million in federal authorization. Backup speaks to $27.3 million for two years--FY 94 and 95. There is a general pool match of $23 million for the approximate $200 million in federal dollars. The system would get a proportion of that required match, approximately $6 million. Mr. Ayers further advised of $15 million in transfers. These are not general fund moneys. A portion of the $15 (approximately $8.5) derives from a previous transfer, and $7 million is set forth in the front section of the operating budget. Senator Kelly inquired concerning the governor's commitment to the new ferry versus other projects throughout the state. Mr. Ayers advised that he could not respond. Co-chair Pearce inquired regarding the $6.4 million in funding from the vessel replacement fund set forth in the governor's capital budget. Mr. Ayers explained that it relates to the $15 million in transfers. Co-chair Pearce further pointed to information listing $54.6 million in federal moneys as the cost of the multi-purpose replacement vessel. Information further shows funding at $27.3 million in FY 94 and a like amount in 95 rather than $30 and $30. Mr. Ayers voiced his understanding that the listed figure are "as much as we were prepared to commit as coming out of the ISTEA funds for those two years." The system hopes to get authorization for those amount and then "hopefully we would get the additional federal money somehow or we'd take it into 96." Co-chair Pearce voiced her understanding that under the scenario described by Mr. Ayers, the project would still be short federal obligation. Mr. Ayers pointed to authorization to utilize other moneys, possible need to extend the project to FY 96, or receipt of additional discretionary funds from Washington, D. C. In response to a request from Co-chair Pearce, Mr. Ayers advised that the balance of the vessel replacement fund is approximately $4.5 million. The legislature has not authorized expenditure of those funds. The system has not requested an appropriation from the fund in the upcoming budget. Senator Kelly inquired concerning the amount appropriated for the replacement vessel up to this time, noting the $500.0 and the $7.5 million in general funds. Mr. Ayers concurred in the amounts and advised that they represent appropriations from the 470 fund. Senator Kelly then asked how much of the $8 million had been spent. Mr. Ayers answered approximately $850.0. He further explained that while the department has authorization to proceed, the system told the legislature it would return with a conceptual design prior to proceeding. The Senator next asked how far the project could proceed without additional appropriations. Mr. Ayers that he had personally made a decision to stop the project until "Everyone is comfortable that we know what it costs and where we're going." The design phase has been stopped until the legislature indicates it wishes to proceed. Further discussion followed between Co-chair Pearce and Mr. Ayers regarding the $5 to $5.5 million general fund match. Co-chair Pearce voiced her understanding that the $5 million designated as "other money" is presently in EXXON VALDEZ settlement legislation introduced in both the House and Senate. The $5 million is general fund money returning to the state as reimbursement rather than mitigation moneys for expenditures made by the state after the spill. Mr. Ayers answered, "As far as I know, Madam Chair." Co-chair Pearce then noted that of the $15 million transfer, the system has already received $8 million. There is thus a $7 million gap. Mr. Ayers concurred. Senator Kelly advised that he was sold on the ship but questioned the financing plan. He voiced concern regarding utilization of all ISTEA discretionary funding for two years and possible need from the mitigation account. The Senator also advised of need for an indication from the administration that the proposed replacement vessel is a priority in terms of general funds. Senator Kerttula concurred in need for endorsement from the Governor.